The Great Gold Scam

A recent question from an inquisitive reader on gold “leasing” got my mind focused upon that topic again, as the question involved the actual mechanics of these transactions, and my answer dealt with issues of legal title to that gold. This, in turn, led me to consider to what purpose/use all of this leased gold has been dedicated.

Many commentators (including myself) have generally assumed that the gold being leased by undisclosed entities was being funneled to traders to be shorted onto the market – as part of the general manipulation operations of the bullion banks. We know that vast amounts of gold are being ‘leaked’ out of gold stockpiles in this manner, since lease rates are always near-zero, and frequently negative. This encourages those desiring legal possession (but not title) of gold to lease heavily.

But what if all this leased gold is not being used as simple collateral to back trading positions? Could there be another (nefarious) purpose in these gold-leasing operations?

We know there isn’t any other legitimate purpose for all this leasing, since (apart from using it in trading) there are no legitimate business reasons for wanting mere temporary possession of gold bullion. As the gold-bashers themselves frequently observe, gold “generates no income” itself; so this leased gold must be used (for something) or there would be no purpose at all to these transactions.

Until recently, it would have been hard to conceive of even any other nefarious uses for all this leased gold, since there simply are not a lot of ways to capitalize on mere temporary possession of gold bullion. This all changed , however, in 2009. That was the year that the world’s central banks flip-flopped from being (massive) net-sellers of gold to net-buyers.

As of 2012, the world’s central banks are now massive, net buyers of gold; on pace to add more gold to their reserves than any other year in history. GFMS Ltd (formerly Gold Fields Mineral Services), the quasi-official record-keeper for the gold industry estimates that total purchases will approach 500 tons this year alone.